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One of the biggest challenges for consumer packaged good advertisers who market online is measuring whether or not their online advertising spend results in real purchases. These are companies with the largest advertising budgets in the world, companies like Procter and Gamble, Shiseido, L’Oreal, Pfizer and Nestle.

Not being able to measure online advertising performance for these companies has been most damaging to social media companies like Facebook and Twitter who are competing with traditional media for budget.

Datalogix is a company that social media services are relying on to bridge the information gap between advertisements that users see online and purchases that they make offline.

If you for joined a store rewards program or provided your personal information to a bricks and mortar company to receive a copy of your receipt or some other rewards, Datalogix can take that information and match it against users on social media website.

In partnership with Facebook they use that personal information to target advertisements to you. Their customers and Datalogix measure the effectiveness of a campaign by segmenting customers into two groups, those that will see the advertisements and those that will not. This segmentation allows them to measure the effectiveness of a campaign. If those that saw the advertisements return to the store to purchase the products advertised at a higher rate than those who did not see it, then it worked.

For example, lets say you go to a retail store and purchase Asahi beer. During that purchase you use the store point card that has your email address associated with it to get a discount. Datalogix will take that email address and the purchase data and send it to Facebook.

Once Facebook has that data, they then sell access to Kirin beer for $10 so they can advertise to you. After all Kirin only wants to advertise to people who drink beer. Make sense right?

The value to Facebook is when you go back into the store and start purchasing Kirin beer. Because you are still using your point card, which Datalogix has access to and is reselling to Facebook. Facebook now knows based on all the data they have on you, that you never purchased Kirin, but now you are buying $40 of Kirin beer every month. With this data Facebook can tell the Kirin that their $10 advertisement resulted in a $30 profit. So spend more!

This technology is critical to the revenue growth of social networks. The biggest complaint of advertisers on social networks is that its extremely difficult to measure the return on investment. With this technology they can. And that means that social networks can now gain a larger chunk of their advertising budgets.

It is conceivable with this technology that online advertising budgets will become larger than traditional media advertising budgets. While a company can measure advertisement performance on TV by separating campaigns by market, it doesn’t give the the level of granularity of online advertising.

The benefit of being able to bridge online advertising with offline is powerful because it allows marketers to target specific individuals using detailed demographic data or actions. On a basic level they can see the type of content you read or websites you visit and purchases you’ve made. Or a deeper level they can verify demographic data that you might not have given them offline, your sexual preference, your age, whether or not you have children?

If it sounds a little frightening, it is. But Facebook and other social networks are never going to reveal the details of how you are being targeted, so you will never know how much companies really know about you. And companies like Datalogix add a layer of data aggregation functionality on top of Facebook that makes it difficult for Facebook to police.

Social networks do take a minimal amount of effort to protect your identity. For example advertisements only use hashes of your email address to identify who you are, so the advertiser already has to have your email address to target you to begin with. How many retail stores have you given your email to?